Former KB Home CEO Bruce Karatz gets both blame and acclaim

Set to be arraigned on charges that he committed fraud in manipulating stock options, he also is lauded by several high-profile supporters.

Bruce Karatz may be facing prison time, but he was the one doing the comforting before his bail hearing in federal court last week.

The former chief executive of KB Home rubbed the shoulders of his visibly upset fiancee, Lilly Tartikoff, whispering in her ear and consoling her. By all appearances, you might not know that he was the one being forced to turn in his passport and pledge a Bel-Air mansion as collateral to make bail.

Karatz, 63, is set to be arraigned today on charges that he committed fraud in manipulating stock options in a case that one FBI agent says illustrates "avarice and dishonesty at its core."

He is one of just six executives to face criminal charges in the nationwide stock option manipulation scandal. What's more, among those six -- and among more than 70 other executives who have settled or still face civil complaints -- Karatz is one of the few alleged to have cooked the books mainly to benefit himself and not underlings, federal authorities and legal experts said.

Karatz, who pulled in $232 million in compensation for the three years ending in 2005, boosted his pay because of the illegal actions, authorities say.

"Here you have a case where the head of the company was already making a lot of money, and he's accused of fiddling with stock options to get more," Rosalind Ramsey Tyson, regional director for the Securities and Exchange Commission in Los Angeles, said of Karatz.

An entirely different picture of Karatz emerges from his friends and associates, who include former Los Angeles Mayor Richard Riordan and billionaire philanthropist Eli Broad, co-founder of KB Home.

"In the 35 years I have known him, I can't think of any instance where he did anything unlawful, unethical or improper, even though he was always aggressively building the company," Broad said.

In 1986, Broad handpicked Karatz to lead the company, then known as Kaufman & Broad Home Corp. A graduate of Boston College and USC Law School, Karatz joined the Westwood home builder in 1972 as a staff attorney, then made his mark by running the firm's fledgling operations in France.

In his 20 years as chief executive, Karatz won acclaim as a marketing genius. In 2006, Fortune magazine named KB Home the country's "most admired" home builder. The firm's market capitalization increased more than 1,200% from 1995 to 2005.

With success came Karatz's outsized compensation, making him a target for shareholder advocates railing against runaway executive pay. The criminal options case has only made him a bigger target.

"These charges have yet to be proven in court, but you have to wonder why a guy who is making that kind of money would engage in this flagrant, reprehensible conduct -- conduct that was so counter to shareholder interests, just to take a little cream off the top," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

Broad disagrees, pointing out that Karatz's success at the company benefited those who owned the stock.

"If you look at how much he increased the market cap for shareholders, I'm not sure you can say that he was unfairly paid," Broad said.

Karatz's friends say the father of three has also performed for his community -- giving generously of his time and money to education and religious causes, including USC and the Wilshire Boulevard Temple, a Jewish synagogue where he served as president.

"Bruce was instrumental in making decisions for the institution that had profound and positive long-term consequences," said Steven Leder, Wilshire's senior rabbi and author of "More Money Than God," a book that promises to tell readers about "living a rich life without losing your soul." "He is someone I can always turn to for advice."

Since 2005, Karatz has been seeing Tartikoff, the widow of former NBC entertainment chief Brandon Tartikoff and a high-profile supporter of cancer-fighting causes.

"I had to meet someone who wasn't intimidated by me, and the thing with Bruce is, he doesn't let me run the show," she told the Times in 2007. "I try, but he just laughs."

Another fan, Riordan, said Karatz always said yes when he tapped him to raise money for a project, including new computers for the Los Angeles Police Department and a drop-in center for homeless people.

"I would ask him to do things because I knew he was a doer," said Riordan, who has served on the KB Home board. "He's got an energy level like nobody else I have ever seen."

Karatz, who declined to comment for this story, has indicated that he will plead not guilty at his court appearance today in U.S. District Court in Los Angeles. He has picked a powerful attorney to defend him: John Keker of Keker & Van Nest in San Francisco, who helped win acquittal for Frank Quattrone, the former Credit Suisse Group investment banker who was charged with obstruction in connection with a probe into illegal kickbacks in initial public stock offerings.